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Dubai rents likely to drop up to 5% in Q2, says CBRE

Rental values in emirates are set to follow downward trend of sales prices over past six quarters

By Yasmin Al Heialy

Fri 20 May 2016 12:00 AM

Dubai rents are expected to further decline up to five percent in the second quarter of the year, from the two percent drop in Q1, as residents tend to relocate and families go back home in the summer, an industry expert has said.

“Q2 2016 will still be challenging,” Erik Volkers, associate director at CBRE Middle East, told Arabian Business. “We have seen a slowdown from mid-2014, in many sectors, especially residential, which has continued up until now.

Sale rates have fallen “quite heavily over the force of the last six quarters,” with a drop of 10 percent in 2015 alone. “Now we see the same happening with rental rates, which obviously for tenants is a good thing - they are in a stronger position to negotiate the rent,” he said.

CBRE's Q1 2016 Dubai MarketView report showed residential sales prices dropped two percent across the emirate, following a five percent slump in the previous quarter, reflecting the negative impact of new supply on the market and slowing new job growth caused by ongoing economic challenges in the region.

Dubai’s prime areas - the Palm, Marina and downtown - rents have been affected the most and “dropped more than the average two percent [and] we can expect further decline anywhere [up] to 5 percent, with the most decline in prime areas.”

“I am more positive now on the rental rates [for Q3],” he said. “The third quarter is key to see where the 2016 and market is heading and to predict where 2016, but this will also depend on the supply that’s coming into the market.”

“By doing our construction updates in 2015, we estimated between 15,000 and 20,000 units would be completed, only 10,000 were provided. For this year, we expect another 15,000 units to be delivered [however] even 15,000 units is not enough to support the potential growth Dubai is still going through.”

“I am a fan of the RERA index, because it had positive impact [on rental rates].”

The Dubai Real Estate Regulatory Agency (RERA) allows landlords and tenants to use an online rental increase calculator to assess whether a rental increase is permitted under the Rent Cap Law.

“With the index calculator, rents can still go up but then there is the tension we will see because there is a rise in awareness for tenants upon their renewal. If they then look at Dubizzle, they’ll see that they can actually get the same apartment or a similar apartment for a lower price.”

“I think we have reached a point where we’ll see, especially in the prime areas, that it is worth moving somewhere else because rent costs more than what you would pay if you moved.”